– Initiate BUY on this midcap and under-researched name, TP Rs2,812. APAT, a specialized steel processor, would double its profits and improve its ROCE to 30.5% from 20.6% by FY20. The stock is undervalued at PER of 13x FY20E.

– APAT is No. 1 steel pipe maker with 13% domestic market share. We are confident that this would rise to 17% by FY20. APAT has managed to grow revenues faster than the sector (5Y CAGR of 27% vs the sector’s 9%) due to its core strategy which is focused on innovation, branding/distribution and capacity expansion. Its earnings expanded at 24% CAGR during the same period. APAT is now increasing its capacity by 54% this year.

– APAT’s earnings are insulated to steel’s cyclical nature. Most of APAT’s 400 products are specialized and are used in high-growth sectors. The stock should not be looked as a steel sector play but a bet on India’s construction/infrastructure/agriculture push. Our TP offers 52% potential upside and is based on PER of 20x FY20E